Q: Our agency has been selected to handle business travel for a major corporation in our area. The corporate travel manager has told us that the corporation wants a written contract with a "service level agreement," or SLA. What is an SLA? How do we draft one? What happens if we don't perform at the required service levels? What if our failure is the result of a third party, such as our after-hours emergency service?
A: A service level agreement is part of a contract between a customer and a supplier of services. In an SLA, the supplier lists one or more standards by which it must operate or suffer a penalty.
A typical and simple example of an SLA is found in GDS contracts, where you may find a section that guarantees that the system will be operational 95% of the time and then provides for a waiver of fees during any days that the system is not operational. The 95% guaranty is the "service level," and the fee waiver is the penalty for failing to meet it.
SLAs have become very popular in the last several years, and they are perhaps the new buzz phrase in corporate America, succeeding "quality assurance," which everyone eventually tired of. So, corporate-oriented agencies can expect clients to ask for SLAs with increasing frequency.
Travel agencies can probably offer service standards in many areas of work. Typical examples would be a maximum number of seconds before answering the phone, maximum number of minutes before returning an email or phone call, maximum number of days before addressing a complaint and monthly deadline for delivery of management information reports. I have seen up to 20 of these standards in proposals and contracts, depending on what the agency perceives as the client's needs.
Travel agency SLAs sometimes add a method by which the agency measures and reports its compliance with a service standard. For example, you may state that your telephone answering time will be measured by monthly reports produced by your phone system.
For agencies, there are two big challenges in drafting SLAs. First, agencies' transaction fees are already often set at rock bottom in order to win competitive corporate procurements, so there is not much room for penalties that would lower fees even further. Therefore, you need to set the penalties at livable levels while still impressing the corporation with the seriousness of your commitment to the service standards.
Second, as you identified, meeting many of the service standards will undoubtedly involve third parties over which you have no real control. If your after-hours service does not answer the phone on time, or if your GDS does not contain the lowest airfares, then it is unfair to penalize your agency.
The solution here is to provide, in the SLA, that you are not responsible for acts of third parties that cause you to miss meeting a service standard. Although the corporation might want to dispute your assignment of fault to a third party, it should be fairly easy for you to prove that the error was not your fault.
A good SLA should not only set forth penalties for noncompliance, but it should also contain a financial reward for meeting or exceeding the service standards.
Mark Pestronk is a Washington-based lawyer specializing in travel law. To submit a question for Legal Briefs, email Pestronk at [email protected].